Japanese airline, carmakers hit by Diaoyus fallout with China

Airline announces cancellations, carmakers halt production, as Chinese demand plummets

PUBLISHED : Thursday, 27 September, 2012, 12:00am
UPDATED : Thursday, 27 September, 2012, 9:25am

All Nippon Airways announced tens of thousands seat cancellations yesterday and several major Japanese car companies suspended production - further evidence of the economic fallout from an intense dispute over islands in the East China Sea.

All Nippon said 40,000 seat reservations had been cancelled on flights between China and Japan from this month to November. A Japanese government-backed organisation in Beijing said the downturn should be temporary.

In the car sector, Nissan said it was halting production in China from today until October 7 to reflect demand. Toyota suspended output from yesterday until October 8 at its Guangzhou and Tianjin plants.

Nissan's output in its largest market by volume fell 8.9 per cent last month from a year earlier, it said yesterday. Chinese production fell 18 per cent at Toyota, Asia's biggest carmaker, and 10 per cent at Honda.

Japanese car brands' market share will probably fall to 22 per cent this year, while German marques will increase theirs to 22.5 per cent, the China Passenger Car Association said, the first time since 2005 Japanese cars will have lost their lead.

Zhang Zhiyong, an independent analyst, said Japanese carmakers were hardly affected by previous Sino-Japanese rows but became a main target for protesters this time, "because Japanese cars never had such an important market share in China".

He said German, South Korean and domestic vehicle makers would step in to fill the breach.

Meanwhile, the Philippines is seeking to lure investment from Japanese companies hurt by the protests. Trade undersecretary Cristino Panlilio said it was offering tax incentives to attract 15 of these companies with the best potential for relocating some of their operations from China.

"We don't want to say we want to take advantage of the misery of others, but we're trying to be practical and help the Japanese," he told reporters.

Last year, Japanese firms invested US$6.3 billion in China, up 50 per cent from the previous year. Investment by US firms, in contrast, shrank to US$3 billion.

The sense among most Japanese firms is the economic relationship is too important to both countries, so the present conflict will blow over. "We currently have no changes to our plans for China, and we are not rethinking our business there," said Takehiko Kato of NEC. "There has been no impact on our operations, as we are mostly in the business-to-business sector there."

A spokesman for Panasonic confirmed repairs were being made at two vandalised plants and production had been fully restored at its Suzhou facility, but he declined to comment on medium-term plans for the firm's operations in China.

Additional reporting by Bloomberg, Reuters